By Vaishali Shah and Sophie Carpenter


Cash flow fuels our financial growth, and in the modern economy, achieving financial freedom requires more than just saving. The budgeting mentality puts a lot of emphasis on reducing expenses. But, you can only reduce your expenses so much.

Increasing income and diversifying its sources is a valuable strategy to weather the rising cost of living and an unnerving job market. Having multiple streams of income and maximizing each can improve your quality of life in a number of ways, from creating a solid foundation to launching an unexpected opportunity.

I’ve found this to be true in my own experience. I’m the sole income earner in our household. I knew, when I got my first job in financial services, that if I lost that job, I’d have to replace my entire income. For that reason, I decided to begin purchasing rental property. During the years I was employed, these properties provided a steady source of income that I could save or invest. If I were to lose my job, this passive income would pay most of my living expenses, thus putting less stress on my emergency fund. And, during the pandemic, they allowed me to make a proactive decision to leave employment for a while so I could be closer to home. When I reach retirement, this stream will be available to meet some retirement expenses.

Why Focus on Income

According to the Bureau of Labor Statistics 2021 Consumer Expenditures Report, average household spending in 2021 was $67,000. Of course very basic expenses cost less, but as you begin understanding your personal cash flow (see our  Financial Foundations series for guidance), you’ll notice that you can only reduce your expenses so far before you’re affecting quality of life. With a recent higher rate of inflation, reducing expenses is even more difficult. This isn’t to say you shouldn’t reduce wasteful spending, but increasing your income and diversifying its sources offers several powerful benefits.

Importance of Multiple Streams of Income

Traditionally, we take our earned income, spend less than we make, and invest the difference in retirement accounts. This is an important first step. However, by failing to grow beyond this process, we’re making ourselves dependent on one main source of income during our working lives and one source of funds during our retirement. Our retirement assets are often invested in stock and bond markets, which, from a day-to-day basis, can be unreliable.

Let’s take a look at the benefits of having multiple income streams:

Increased stability

In our blog post, Cash Emergency Fund: Is 3 Months Enough?, we discuss the importance of an emergency fund for unexpected expenses. Diversifying your income is another tool to overcome unexpected obstacles. You’re less likely to pull from your savings or take on unnecessary debt when you have additional income. Income diversification also provides stability in cash inflows. If you live off of one primary income source, and something happens to it, then you have to replace the entire stream. Having supplemental streams allows you to lean on these for expenses if you lose your primary income.

New opportunities

Multiple streams of income, allows you more time to experiment. You can explore new projects and even new industries or fields. By increasing your earnings, there is less risk related to trying new projects, and you could even discover opportunities that better align with your values.

Life Enrichment

Income diversification gives you more control over your time. Perhaps you want to work fewer hours at your primary job or take time off for yourself or to spend with loved ones. Passive sources of income give you more free time to pursue your interests. Alternatively, you can explore new passions and hobbies through your secondary stream of income. It’s never too late to learn a new skill!

Giving back

More financial freedom makes it easier to contribute to your community on a regular basis. By donating to nonprofit organizations, supporting local businesses, and assisting community members, you build a better life for yourself and those around you. These traditional methods are not the only ways to be charitable. Investing in socially responsible companies and founding a nonprofit organization are also ways to give back through secondary income streams.

Multiple Streams of Income in Action

We have several clients who have created secondary sources of income ranging from turning a primary home into a rental property, to teaching music classes, to growing lines of active wear. These are all examples of using our time, energy, and money to diversify income and improve quality of life.

By taking time to invest in new opportunities for yourself, you can achieve financial freedom which will not only protect you from economic uncertainty but also uncover new chances to grow.